The monthly Commerce Department report showed new home construction climbed in all regions except the Midwest, where starts fell 24.8%. Building permits, a gauge of future construction, rose 8.1% nationally in July.

Credit Suisse economist Dana Saporta said the latest housing-start report should lessen concerns, raised last week by Fed Vice Chairman Stanley Fischer, that the housing market had become a major impediment to a more robust economic recovery.

"Looking forward, a case could be made for continued improvement in the housing sector," Saporta said.

And there have been signs the national housing market is strengthening, after starting to cool last summer amid higher prices and mortgage rates.

Sales of previously owned homes have been on the rise, and a gauge of home-builder confidence is at a seven month-high, a trade group reported Monday.

The consumer price index, a leading measure of inflation, fell last month into negative territory over a 12-month period for the first time since the fall of 2009, when the nation was just emerging from recession. It also fell from December, the third straight month-to-month decline.

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